Is delivery the new black? Three trends are changing the distribution landscape

A great article in realbusiness by Tim Robinson describes the changing image of logistics and fulfilment becoming the sexy end of retail.

The seemingly unstoppable growth of online shopping has put the spotlight on fulfilment and delivery in particular. Delivery options are now promoted in prime media space, a situation which would have been unheard of 10 years ago.

The article goes on to detail new ways of meeting consumer need fulfilment in terms of matching ease of purchase with ease of access to products. Read here for Tim’s update on technology, environment and the sharing economy.

The key point for NAMs is to see this raising of the fulfilment game in the same way that savvy consumerism spread back up the pipeline, making the buyer more savvy, demanding demonstrable value for money, or else…

In other words, as retailers struggle to meet the rising standards of home delivery, so these standards will spread up the supply chain and become the norm in supplier-retailer delivery..

If in any doubt, why not nip down to the despatch department and find out what your logistics colleagues think?

Lidl - the real threat?

This week, why not visit your nearest Lidl and think about the threat to the major mults? Even better, follow it with a call on a nearby Tesco to heighten the contrast…

See how long it takes for you to appreciate that the hard discounters becoming more like supermarkets is not the issue... Of course they will add to their offering, especially to cater for upmarket clients…

But suppose their real impact is in making the consumer-shopper value a simpler, more limited choice, and in the process convincing us that we cannot perceive – and don’t always need – the ‘extras’ provided by equivalent brands at 30% more…

Causing us to ponder whether we are changing the discounters, or they are changing us?

Now that’s the type of competition the mults – and their branded suppliers - don’t need…

Waitrose raises the Private Label bar - a threat for all brands?

News that Waitrose is rolling out 'Waitrose 1' premium label across 500 food products, replacing some premium ranges but adding ‘new and improved lines’ raises some issues for suppliers:

• Given that Waitrose tops the league table for best place to buy private label (Which? report 2015, 47% of products tested achieved best-buy status) this represents an extra emphasis on premium own label
• Bearing in mind that Aldi came 2nd, Sainsbury’s 3rd and Lidl fourth in the same survey, it is likely that other mults may take the Waitrose move as an incentive to upgrade their private label offerings
• With all mults in the same large-space, out-of-town boat, their growth will be at the expense of other mults...
• Price-cutting on brands has not worked and has impacted bottom lines...
• ...and private label remains the only real differentiator for the mults
• This could mean we are entering a new type of food-based private label quality-war, which if it works, could spread to other categories

Dyson preparing to hoover up the re-chargeable battery market?

News that Dyson will spend £1bn – plus a UK grant of £16m in last week’s budget - on battery development over the next five years has to serve as a warning that this innovative disruptor is on the move again…

Following a 2015 acquisition of Satki3, a U.S. maker of solid-state lithium-ion batteries for $90m, having previously invested $15m in the Michigan firm, Dyson is ready to invest in the firm’s discovery that it has found a way to produce batteries with twice the energy storage potential of standard lithium-ion models, at a half to a third of the cost.

A step too far?
I still blush when I recall a very early competitive brainstorming session conducted for a defunct supplier where we concluded that whilst a see-through vacuum cleaner model might appeal ‘in the shop’, the first-use viewing of gathered dust would soon alienate most consumers…Dyson obviously knew better...

• While the immediate application for new batteries would probably be in Dyson’s existing cordless products, they have potential uses in everything from electric cars to tablet computers
• In other words, imagine the disruptive appeal of twice the energy storage potential of standard lithium-ion models, at a half to a third of the cost...

Tesco Takes On Discounters With Seven New Value Own Label Ranges, So?

                                                                                                                                pic: Marketing Week

News that Tesco stepped up its fight against the discounters yesterday by launching a host of new value-orientated own label ranges in the fresh produce and meat categories raises some questions:

• What are the chances of Tesco value-labels possibly being perceived as 'cheap' versions of the Tesco brand, a downward stretch, whilst discounter surrogate labels look equivalent to brands in quality, an upward stretch?
• Same quality, same price, different perception...?
• ...and the ultimate question being: Which customer is more likely to say “Wow”?

Sainsbury’s Confirms Offer for Home Retail - the next steps and imlications

News that Sainsbury’s moved a step closer to sealing the takeover of the Home Retail Group/Argos on Friday, by tabling a formal offer for the business after rival bidder Steinhoff International pulled out, raises a number of implications...

NAM Implications:

• Whilst as yet, there is no obviously sign of an amply-proportioned lady vocalist preparing to take centre-stage, this looks like a done-deal...
• Obviously the competition authorities will play their part - delay & distraction - but management’s immediate focus has to be on squeezing costs and generating synergies from the mix…
• This has to result in well-heralded store closures - otherwise why bother to acquire - and if this means 300 Argos being transferred into nearby space-to-spare Sainsbury’s branches, so be it
• Ultimately, the Sainsbury’s-Argos combination has to perform better than the separate entities
• ...meaning opportunities for visionary suppliers

Driving Demand, Government-style...

Unit-pricing: The 'missing' ingredient in price comparison

The latest Which? Report highlights the 'up to' 4x premium shoppers pay for the convenience of pre-sliced and pre-portioned foods. The price disadvantage of buying smaller sizes of other essentials is also highlighted.

Whilst retailers can obviously point out that in most cases the unit price is displayed on the price-label to facilitate like-with-like price comparison, the only problem can be the fact that many consumers do not understand the meaning of unit pricing, apart from the mental gymnastics required in breaking down 100g, kilos and volume-equivalents in the case of liquids.

In effect, the unit-price serves little useful purpose and may even add to the confusion of the shopper...and given that confusion leads to suspicion, it can be seen that the real casualty is trust in the retailer...

On-shelf education could be applied via a standardised category league-table of price per 100g comparisons, in very simple language...

Patronising? No way. We are not talking about degrees of intelligence, merely accepting that a busy, distracted shopper is only giving 10% of their attention to true comparison, based on a reasonable level of trust in the retailer...

Allowing the current confusion to continue can lose both trust and shopper...

Of course teaching consumer-shoppers to understand unit pricing makes the consumer better-informed and more difficult to mislead...

Welcome to the new world savvy consumer!

Professional NAMs already take that risk by helping the buyer to make valid like-with-like comparisons, thereby making them more demanding, but the current climate demands a fully informed supply chain.

Helping the 'buyer' to buy can help...

Aldi/Lidl - Home of the missing 'Wow'?

'Aldi and Lidl starting to look like 'conventional' supermarkets', but they are not...

Recent statements by Sainsbury's, Asda and Tesco implying that discounters are adopting some aspects of conventional supermarkets -including costs - but will not match them on range and service miss a point that may be worth considering.

A visit to your nearest Aldi/Lidl will confirm that 'Wow' is a significant ingredient in the discounter offering that may have been bred out of multiple offerings by EDLP and 100% availability...
Furthermore, as the mults increasingly cut prices to match the discounters, they might need to consider possible consumer-shopper reaction in each business model:

• When prices are lowered from the long-established 'norm' in a conventional supermarket, the reaction may be 'why are they only charging this price for such good quality?'
• ...whereas, in a discounter offering the same quality at a slightly lower or even the same price may cause a shopper to ask 'Wow, imagine this quality for this price'...!

In fact, as supermarkets lower their prices to discounter levels, they may still be subject to this difference in reaction.

If 'wow' is now the missing ingredient, the way back for the mults is surely via customer service, something the discounters can never hope to match...

In other words, why not aim at evoking the aisle-response 'Wow, imagine them giving me this degree of personal attention on a simple request!'

What if Bent Veg become the New Straight?

News that Tesco has joined Asda and Morrisons this week in launching a ‘wonky veg’ range in its stores, as part of an 11 step food waste reduction campaign, raises a number of issues for stakeholders.

This initiative will obviously benefit the ever increasing needy and also reduce the pressure on farmers to meet ‘perfect shape’ specifications, resulting in less delivery-rejects.

However, suppose ‘wonky veg’ also touches a live nerve with consumers, appealing to their appetite for ‘natural’, down-to-earth food that also happens to be cheaper because of its imperfection…but tastes as good as, or even better than the ‘real thing’?

(NAMs closer to the category will know that taste and flavour were long ago compromised in the pursuit of perfection in shape).

In other words, if ‘wonky’ becomes mainstream, and even grows to say 50/50 share with ‘straight’, are we then on a road to specifying different degrees of ‘wonkyness’ in a new range of wonky sub-categories, ‘re-upping’ the pressure on farmers to meet the new specs, and also diluting retail profitability…

We are truely living in crazy times…

Staff wages - Aldi Ireland’s hidden extra in the battle for market share

Given Aldi’s natural reticence, a surprisingly detailed 2,000 word article in today’s Irish Times gives some useful insights into the Aldi business model, much of which can be applied to its UK operation.

The article describes Aldi as a logistical and ergonomic-driven machine, a finely-tuned operating model, where “everybody knows what they have to do, and how to do it”, which helps it keep costs to a minimum.

Moreover, its emphasis on exclusive surrogate labels means the packaging, the case it arrives in, the way it gets delivered and shipped to store in shelf-ready packaging, is all under Aldi’s control.

Also, just-in-case, mystery shoppers are employed at each store to ensure that theory is reflected in practice… 

However, the fact that staff are paid at, or above the living wage, and the discounter is known as the best paying retailer in the market, means if the same policy holds in the UK, Aldi will not have to absorb the additional wage cost increases that will put additional cost pressures on UK mults when they have to comply with minimum wage legislation.

Methinks the discounter's competitive edge may be sharper than we thought...?

Much more detail in the Irish Times Article

Amazon elevates delivery to a new level by leasing 20 Boeing cargo planes

News that its US Prime members will benefit in terms of delivery speed and availability from Amazon’s decision to in-source its bulk transportation came as little surprise to observers following its experiments with drone delivery and pre-assembly of anticipated orders.

This latest move reinforces Amazon’s determination to be a global source of anything that can be legally sold to anyone, anywhere, anytime, in any way required by the consumer.

In other words, plane-leasing should not be expected to remain a US initiative for long…

By taking more control of fulfillment, and removing middle men, the company is reducing costs from the supply chain, eliminating duplication-inefficiencies and offering virtually 100% availability via its infinite online shelving.

In the process they are setting industry standards in terms of 1-Click ordering, ever-shortening delivery times, and ‘no-quibble’ returns, in an industry that is stumbling along in their wake…

Moreover, Amazon have managed to persuade loyal users to pay for and become Prime Members, thus triggering another steady revenue stream…

When you think about it, leasing a few Boeing cargo planes is but another step on a very comprehensive journey by an ultimate practitioner of customer-centricity...

Can anyone really afford to be outside this unique business model…?

A space race, but not as we know it....online retailers could be hit by warehouse space shortage

According to a new report by property consultancy LSH in International Business Times, Amazon, Tesco, Argos and other online retailers could be hit by shrinking warehouse space. In fact, logistics space fell from a peak of 360 million sq. ft. in 2012 to 200 million sq. ft. in 2015 (Reuters).

Lambert Smith Hampton (LSH) predict that demand will exceed supply by 25 million sq. ft. by the end of the decade.

Given these retailers use a network of warehouses to ensure faster delivery of goods to customers, the shortage of storage space will affect their delivery capabilities.

Knowing that the retailers involved - and their online shoppers - don’t do waiting, it is unlikely that they will await the 1-year construction time of new-builds, and will instead race to buy available space.

Ironically, given the planning legislation, and different prices/rentals for retail vs. industrial usage, those B&M retailers with redundant large-space cannot simply switch some of their outlets over to online warehousing, although some may compromise, and ‘make do’ in the short term...

More likely we are probably going to see more consolidation/takeovers of any source of suitable warehousing, and even inter-retailer collaboration as stakeholders demonstrate their determination not to compromise the potential of the only growth-channel in town…

For suppliers, this means more complicated and rapid response logistics arrangements in a fast changing logistics landscape.

It is hopefully obvious that they will not be allowed to compromise online retailers’ ability to meet online-shopper need, as speed and availability become the only real differentiators in the online race… 

When you don't need the brand name...

HT to Phill Barnett for pointer

Supermarkets Fastest Growth In Five Months - Source & Impact?

Taking the latest results from Nielsen and Kantar, it is encouraging that some of the mults appear to be coming back (possibly at the expense of other multiples?)…no-one ever wanted these guys to fail, and besides so much of the supplier business model is built upon growth and the mults having a major slice of the action.

However, brand-owners might usefully think about the split between brand and private label of the market data. Add to this the high rate of discounter market share growth, again at the relative expense of brands’ demand and a different picture of recovery emerges..

All pointing to the fact that brand premia are being eroded, hopefully triggering a return to basics, real basics, by the realists… 

Tesco Ireland Fails To Convince Court That It Can’t Afford To Pay Staff Bonuses

News that The Labour Court in Ireland has recommended that Tesco’s Irish business pay staff their 2015 bonuses despite the retailer saying that it is not in a position to do so given its weak trading performance in the country, could have unintended consequences:

• If Tesco decide to fight this recommendation, in open court, they may be forced to divulge local profit margins…
• …with the inevitable knock-on impact in terms of putting other retailers' profitability in the spotlight
• …all in a local environment that is being increasingly subjected to corporate tax scrutiny by the US and EU…

On the bottom line, every little helps...

Muhammad Ali - an inspiration to Ovaltine and the team

News that an exhibition dedicated to the great man is opening today at the O2, calls to mind his first product-endorsement tour of the UK.

Back in 1971, Ali agreed to work for a week promoting Ovaltine via an extended train trip around the UK, stopping at every station that was near a supermarket, inviting the local managers on board to meet the champ and disembark at the next station, inspired for life, in many cases.

We even managed to secure an interview on the new Michael Parkinson TV chat show, an episode that has been repeated many times since.

To our surprise, we found Ali to be a modest, even shy man, with immense presence, whose can-do attitude proved to be an inspiration personally and to other members of the team.

As fans will know, because of illness, Muhammed Ali will not be able to attend the opening session, but he has sent a mock-epilogue to commemorate the event:

'I would like to be remembered as a man who won the heavyweight title three times.

Who was humorous and who treated everyone right.

As a man who never looked down on those who looked up to him.

And who helped as many people as he could.

As a man who stood up for his beliefs no matter what.

As a man who tried to unite all humankind through faith and love.

And if all that's too much then I guess I'd settle for being remembered only as a great boxer who became a leader and a champion of his people.

And I wouldn't even mind if folks forgot how pretty I was.

Be cool and look out for the ladies!'

Guest Blog: Are your customers taking the….funding??

By Ian Yates, Director at Barcanet

Ever had one of those days? Just as you finalise the sales and growth forecast, your key customer (or someone on their behalf) sends you that email….

‘Some years ago, your predecessors, predecessor agreed a promotion on the product you no-longer manufacture.  We have been going through our records and found that we sold a lot, but didn’t ask you for all the funding, therefore you owe us lots of money (we haven’t added loss of interest as I think we can settle this quickly ;-).  Please find attached 200 pages of documentation that substantiates what we are saying.  We will knock the value off the next payment to you.  I don’t anticipate this will impact the funding you are offering on future promotions.  Have a nice day.’

Let me explain the chain of events that got you here:

1. Three years ago, the buying team at the customer did some analysis on what was sold during the agreed promotion, calculated what funding you owed and you paid the invoice.
2. Around 6-months later, the customers internal finance team found that a whole bunch of sales hadn’t been included in the original calculation.  Did a new calculation and raised another invoice – you paid that as well.
3. Another 6-12 months later, an external ‘recovery-audit’ company (specialising in retail funding/promotions) trawled through the transactions and found yet more discrepancy.  The customer had forgotten to include in the calculation all stock that was bought for the promotion (i.e. before the promotion actually started), not just what was sold.  They sent a claim to your predecessor, he hadn’t time to review it so agreed a settlement.
4. Two years later (now), a different ‘recovery-audit’ company is doing another review.  They think they have found more errors, they aren’t altogether sure, but it kind-of looks like there are some mistakes, so they have raised a series of claims with a lot of back-up documents and sent them to you for review.

And here we are, the onus on you to fix a mess from before you even joined the company.  What do you do now?

My guess, is negotiate another settlement?  Finance and IT haven’t the time (or inclination) to get you the data, and lets be honest you don’t have the time or inclination to analyse it – so its easier to negotiate with the customer.

And that is exactly what these audit companies want.  They are remunerated by taking a share of whatever they are able to recover from you for the customer - so the more claims they raise, the more likely a negotiated settlement, the more they get paid.

Not only does this cost your business money (and cold cash at that), but it impacts on this year’s marketing budget, which means less promotions and reduces your chances of achieving target – lets start again on the sales plan!

OK, yes we can help you analyse and, where appropriate, rebut those claims (and that is a worthwhile exercise freeing your time and money).  More importantly, how do you manage this whole promotional funding process better?

Of course, utopia is for your ERP system to connect with the various promotional, ordering and AR systems to effectively manage this – but that will cost – both in time and £’s.

Quicker and cheaper – introduce a process where the relevant data is taken from these disparate systems and centrally stored and analysed on an ongoing basis, so you know your exposure at any given time (if you like, the reverse of what the recovery-audit companies do).

As a very quick starting point, here are 4 tips you should consider implementing to reduce the promotional funding administration processes:

1. Consider inserting additional clauses into funding arrangements;
   a. ‘claims for funding’ must be made within 6-months of the promotion finishing.
   b. in the event any ‘claims for funding’ submitted are found to be illegitimate, we will charge you (the customer) at a rate of £150 per hour for the time taken to investigate and reject the claim.
   c. informing suppliers that any disclosure of ‘pricing’ or agreements to any 3rd parties will contravene the agreement or deal, this should include ‘Audit Recovery’ firms.
2. Agree that calculations and submissions made by the customer will be treated as full and final - request a declaration from the customer before settling any funding or any cessation of supply of any product or service, confirming they have received the correct payment for goods or services to date.
3. Build a centralised ‘log’ of claims received by customer and the settled value – showing a high % of ‘false’ claims makes negotiating the next one a little easier.
4. Identify (internally or with the help of a 3rd party) underpayments, payments not within ‘agreed terms’ and over deductions made and submit as ‘Counter Claims’. These will at least reduce the value of any claim and may result in the customer not pursuing their claims further.

For further information or a confidential discussion, contact Ian Yates, Director at Barcanet 
Email: ian.yates@barcanet.com or Tel. +44 7868-745705

Queueless, Cashierless Convenience, 24/7 - a Swedish Smartshop

According to Associated Press reports in Gizmodo, a 480 sq. ft. store that operates via smartphone has opened in Viken, Sweden.

A door-opening app-scan registers and allows access to creditworthy customers 24/7, goods are purchased by scanning the barcode, and the bill is paid monthly.

Behold the convenient convenience outlet of the future… 

BTW, six security cameras and a ‘crow-bar wielding’ human owner ensure the shrink-proofing of a business model that aims to bring small shops back to many communities in Sweden that have been swallowed up by supermarkets and big chain stores.

As the son of Mom ‘n Pop grocers, I would caution against the 1-month credit facility, but otherwise this Smartshop looks scaleable, exportable, and is possibly a way of diluting the minimum living wage issue for major retailers?

More here

Morrisons-Amazon Supply Arrangement implications

News that Morrisons aim to supply Amazon Prime Now and Amazon Pantry customers with a wide range of Morrisons ambient, fresh and frozen products will obviously impact UK multiples' business.

NAM Implications:

• Prime Pantry Partnership is a leap forward for Morrisons, besides optimising spare capacity in their factories...
• Morrisons, by continuing to work with Ocado, can have little objection to Ocado offering their fulfilment services to other mults...
• By which time, as Amazon-Morrisons coverage increases, so will Morrisons begin to compete with itself via Ocado-Morrisons
• Meanwhile, although charging £2.99 for Prime Pantry delivery, if Prime customers ‘forget’ the annual fee, Amazon will have set a new low in delivery charges, increasing pressure on other multiples
• …While Amazon then tightens the delivery-speed option…
• Finally, Argos fulfilment had better be as good as is hoped…

Zero-sum collaboration: Every £1 checking compliance, is one less building joint equity...

Amazon Fashions Some Private Label

News that Amazon is introducing at least seven private label fashion brands in early 2017: Franklin & Freeman, Franklin Tailored, James & Erin, Lark & Ro, North Eleven, Scout + Ro and Society New York, represents a significant breakthrough.

These surrogate labels may not shake the foundations of Food and H&B brands - yet - but if Amazon strengths are applied to the concept, then the possibility of some real incremental competition may warrant a place on the NAM agenda.

For instance, Amazon could optimise its data-collection capabilities to read consumer trends and deliver products to match them; fill gaps in its merchandise selection that leading brands won’t supply, and, most importantly perhaps, ride the sea-change taking place in retail and fashion toward the see-now, buy-now, wear-now movement. 

Adding speed and efficiency o these strengths make them unique to Amazon…and migrating them over to private label Food and H&B would be a small step for Amazonkind…apart from revealing and filling range gaps of which even brand owners are currently unaware.

So there are advantages for all in monitoring Amazon’s early moves, however distant from a NAM’s remit...

Or why not wait until it becomes a proper threat?

What if easyFoodstore decide to sell paint?

Given the initial success of easyJet's venture into discount food retailing, it might be interesting to explore the possible application of airline pricing to selling paint…

Customer: Hi. How much is your paint?

Clerk: Well sir, that depends on a lot of things.

Customer: Can’t you give me an approximate price?

Clerk: Our lowest price is our introductory special at $12 a gallon. After that we have dozens of different prices up to $199.

Customer: What’s the difference in the quality of the paint?

Clerk: Oh, there’s no difference. It’s all exactly the same stuff.

Customer: Well, in that case I’ll take your $12 paint.

Clerk: Well actually the $12 variety is only available on our website. If you want to buy it here at the store you’ll be charged an additional $20 Customer Convenience Fee

Customer: So if I go home and get it off the website, its only $12?

Clerk: That’s correct sir – plus a Credit Card Usage Fee of $6 and then there’s standard Shipping and Handling of $15.

Customer: What? So in other words buying online would cost me almost exactly the same as what I’d have to pay here in the store?

Clerk: I suppose so, but if you buy it here you get to use it immediately. Online purchases take ten business days to get to you – unless you pay the optional $25 Express My Paint Fee.

Customer: You’ve got to be kidding me!

Clerk: Well no sir, but it’s academic anyway as right now the $12 paint is completely sold out in both places.

Customer: That’s BS. I’m looking at shelves full of the stuff!

Clerk: Ah, but that doesn’t mean it’s available for sale. We sell only a certain number of introductory priced cans on any given day. Oops, look at that! It just became available again – at $17.50.

Customer: C’mon! You mean to say it went up while I’m standing here?!

Clerk: ‘Fraid so. Inventory control changes our prices all the time.

I strongly recommend you purchase your paint as soon as possible as it could go up again. How many gallons do you want?

Customer: Well, maybe three gallons. No, make that four, I don’t want to run out. I assume I can return anything I don’t open?

Clerk: Certainly sir. The $12 paint is non-refundable, but if you return it within 48 hours you will be entitled to a $5 credit towards the future purchase of another gallon of the same color at the same or higher price.

Customer: That’s crazy. In that case I’ll just give any unopened cans to my brother as he’s planning to repaint his home soon.

Clerk: Sorry sir, no-can-do! Our terms and CANditions – that’s a little in-house joke – prohibit paint transfer. It is strictly for the use of the original purchaser.

Customer: But wait a minute, I hadn’t spotted those “Paint Sale – $9.99* a Can” signs over there? That sounds like a much better deal.

Clerk: Ah yes, that’s from our low cost paint division. The asterisk denotes that the cans are actually half-gallons and the price is based on a minimum purchase of two. There is also an additional Environmental Fee of $5 per can, a non-refundable Can Deposit of $3.50, a Paint Facility Charge of $5 and if you want more than one color, the second has a $25 surcharge and the third is $50 extra.

Customer: This is utterly ridiculous. To hell with this! I’ll buy what I need somewhere else!

Clerk: Well sir, you may be able to buy paint for some rooms from another store, but you won’t be able to find paint for your connecting hall and stairway anywhere but here. And I should also point out that if you want Uni-Directional paint it is priced at $249 a gallon.

Customer: I thought your most expensive paint was $199!

Clerk: That’s only if you paint non-stop all the way around the room and back to the point at which you started. Stairways and hallways are considered one-way exceptions to the rule.

Customer: So, if I buy the $199 paint and use it in my hallway what are you going to do about it – send some goons in to paint over it?

Clerk: Wow, I believe you’re getting it now sir. But no, please, that would be plain silly. We’ll simply charge you a Direction Adjustment Fee plus the difference to $249 on your next purchase.

Customer: Next purchase? No way! I’m out ‘a here

Clerk: At Skyhigh Paints we never forget you have a choice, so thanks for shopping with us. Have a nice day!

Credits: 
Appears to have originated in Travel Weekly, October 1998, by Alan H. Hess